Nashville, Tenn., lawyer Brian Manookian is currently suing local jeweler Genesis Diamonds for carrying reports from EGL International. You can read some details of the suit here.
Whether retailers bear responsibility for the reports they carry has become a hotly debated topic in the industry. And while this particular case—or the other suits it has spawned—has yet to be decided or litigated, Manookian has agreed to answer some questions about his view of the legal issues involved.
JCK: We are interested in how you became interested in the topic, and how you as an outsider/consumer perceived it when you learned that there are different lab standards in the industry.
Brian Manookian: I received a personal introduction to the topic after being sold a 3 ct. diamond that was five color grades off. After some research, I perceived the “different lab standards” the same way I think every competent and honest jeweler has for a decade: namely, that certain labs exist primarily to over grade and exaggerate the qualities of the diamonds they grade. Let’s call it what it is. That’s their business model, it’s how they distinguish themselves from other labs, and that’s how they make their money.
JCK: How much case law/prior litigation has there been on this topic?
Manookian: I follow the comments on JCKonline articles as well as the debates on Polygon. I think there’s a misconception among some jewelers that there is a lack of case law on this topic. While there are no published cases (that I’m aware of) examining the specific issue of diamond-grading reports, there is enough case law on retail misrepresentation and consumer fraud to fill a small library. Forty-three states and the District of Columbia have some form of consumer-protection statute that expressly prohibits misrepresenting the quality of goods you sell or making deceptive statements about their certification, sponsorship, or affiliation. It is beyond settled that doing those things will subject a retailer to significant legal liability. The short answer is: a lot.
JCK: If a lab makes a bad or inaccurate call on a report, does a retailer bear responsibility for that?
Manookian: If the retailer is adopting those bad or inaccurate grades into the representations he makes to the customer, then yes, absolutely he bears legal responsibility. It doesn’t matter whether you’re a jeweler, a car salesman, or an antiques dealer, a retailer has an obligation to honestly and accurately represent the goods he offers to the public. You can’t pass off an over-graded stone then hide behind the same lab report you used to sell it. In cases where a jeweler is blindly adopting bad or inaccurate grades or worse, and knowingly passing on over-graded diamonds, he is going to find himself legally liable for the consumer’s damages.
JCK: Does the fact that grading is subjective make these cases harder to argue?
Manookian: I think so, within a certain range. One grade off is a professional difference of opinion. If you’re five grades off, you are either incompetent or intentionally misrepresenting what you’re selling.
JCK: We often hear that lawyers are not interested in this topic because even if the grade is found to be inaccurate, the consumer generally paid a fair price for the stone so there is not much economic harm to the consumer. Do you agree?
Manookian: Again, I think that’s a jeweler-created fiction. I certainly haven’t heard it from any other lawyers. The reality is that you have an expensive luxury good at the center of the litigation, and in most cases you can recover an additional three times the consumer’s damages as well as attorney’s fees. That can be a significant amount.
JCK: If a retailer honestly represents that the report is graded to a different standard, does that make him less culpable legally?
Manookian: Absolutely. Honestly representing the quality of a good is not actionable.
JCK: Do you think we can expect similar litigation of this type in other jurisdictions?
Manookian: This is just getting started. I think the practice of passing off over-graded diamonds as equivalent to similarly graded GIA counterparts was pervasive among a small number of bad apples in the industry. Those actors should expect to see a lot of angry customers and lawsuits in the near term.